Money Laundering

Anti-money laundering (AML) laws control how money can move through the market. They create rules for financial institutions and other businesses to prevent and detect crime.

Money laundering laws also establish serious punishments for criminal activity. If you face money laundering charges, learn about the process for these criminal cases.

This article discusses money laundering statutes. It also traces the government's efforts to make organized crime unprofitable.

What Is Money Laundering?

Money laundering is a process through which dirty money becomes unrecognizable as connected with a crime. Money becomes “dirty” when it trades hands due to illegal activity. Laundering money makes it “clean” again. It looks like the person gained it legitimately.

Crime-related money gains a new background through a series of steps:

1. Placement happens when the money enters the legitimate financial system, whether in the U.S. or an offshore bank account.

2. Layering is fraudulent bookkeeping or a series of financial transactions that make it hard to follow an audit trail.

3. Integration sees the money come back to the criminal. The funds appear to be legitimate proceeds from a business or real estate investment.

Money laundering often accompanies organized crime, white-collar crime, terrorist activities, and drug transactions.

How Criminal Laws Define Money Laundering

Federal criminal statutes expand the definition of the crime of money laundering to include a few specific actions.

First, money laundering may involve using the proceeds from certain crimes to engage in a financial transaction to:

• Conceal the source or ownership of the money

• Promote further criminal offenses

• Evade income taxes

• Evade monetary reporting requirements

Second, money laundering could involve traveling in or through the U.S., or transporting illicit funds through interstate commerce to:

• Distribute the proceeds of criminal activities

• Promote criminal activities

Third, it may involve using a money-transmitting business (like Western Union or Venmo) to transmit funds to promote criminal activity.

Finally, spending more than $10,000 of the proceeds of an illegal activity can lead to money laundering charges.

It is important to understand that money laundering charges are secondary to a primary crime. This crime is how the individual or criminal organization gained the money. For example, stealing money from someone would lead to a primary theft charge. That original crime is called a "predicate offense."

Criminal Punishments for Money Laundering

A money laundering conviction can tarnish a criminal record. Courts take money laundering offenses seriously, and the sentencing reflects that fact.

Because federal laws prohibit money laundering, breaking them means facing federal charges. Federal courts handle the trial process for these criminal cases.

Money laundering penalties can include significant fines. These fines are in addition to turning in the amount of money laundered. For example, cryptocurrency company Binance had to forfeit $2.5 billion related to revenue from AML violations — plus pay a $1.8 billion criminal fine ($4.3 billion total).

If you are convicted of a federal crime, you’ll serve any necessary jail time in a federal prison. The amount of prison time depends on which law the criminal charges fall under. In general, the maximum jail time for money laundering is around ten to twenty years.

What Is the Money Laundering Control Act?

The Money Laundering Control Act (MLCA) of 1986 was the first law to criminalize money laundering. It has two sections (18 U.S.C. sections 1956 and 1957). Each section combats a slightly different money laundering scenario.

The MLCA prohibits financial transactions using proceeds from “specified unlawful activities” (SUAs). A violator must be aware that the money came from an SUA.

When proving a money laundering case, the government does not have to trace the money back to a particular criminal activity. It also does not need to prove that the accused knew the exact criminal activity that generated the funds. The prosecution only needs to prove that the defendant knew the funds were gained from illicit activities.

Crimes Included under MLCA

The Act lists more than 250 state, federal, and international crimes as SUAs. This long list includes federal healthcare offenses, federal environmental offenses, and more.

Many of these crimes relate to organized crime activities, such as:

• Racketeering, which mostly falls under the Racketeer Influenced and Organized Crime Act (RICO).

• Drug trafficking

• Bank fraud

• Wire fraud

• Gambling

• Bribery

• Extortion

The MLCA also extends to international money laundering schemes. It prohibits moving (or attempting to move) funds in or out of the U.S. for illegal purposes. For foreign crimes, the financial transaction needs to occur, at least in part, in the U.S.

Criminal Penalties Under MLCA Section 1956

Section 1956 applies to transactions of any amount. It also requires proof of illegal intent, such as tax evasion.

Crimes under this section must occur with intent to do any of the following:

• Promote further criminal activity

• Violate tax laws

• Conceal the source, ownership, or control of that money

• Avoid federal or state reporting requirements

For example, “smurfing" or "structuring" transactions are a common strategy to illegally avoid reporting requirements. These deals break a large amount of money into smaller deposits or financial interactions. The money launderer intends to avoid reaching the $10,000 reporting threshold.

If found guilty under this section, defendants could face up to twenty years in prison.

Forfeiture is also a typical punishment for money laundering. It allows the government to confiscate any property purchased with funds from crime.

Money laundering fines can be up to twice the value of the property involved. The value of the criminally derived property is a key factor in determining the fine an offender will pay.

Criminal Penalties Under MLCA Section 1957

Section 1957 only applies to transactions of at least $10,000. Unlike section 1956, it does not require the same proof of intent to hide the source of the money. Yet, it still requires proof that the defendant knew the money came from illegal activity.

Breaking section 1957 can lead to the following penalties:

• A maximum penalty of 10 years in prison

• Confiscation of property purchased with proceeds of crime

• Fines of twice the amount of the transaction

History of Federal Money Laundering Laws

Alongside the MLCA is a complex web of federal laws and regulations.

Money laundering laws initially combatted the Mafia and organized crime. These criminal laws had two goals. First, they aimed to prevent criminals from disguising the origin of funds. They also worked to stop criminal enterprises from taking over legitimate businesses.

Over time, the focus of law enforcement agencies shifted to the "war on drugs" and, later, to anti-terrorist activity.

The Bank Secrecy Act

The Bank Secrecy Act of 1970 (31 U.S.C. section 5311) is a law enforcement tool regulating banks and financial institutions. It requires them to:

• Keep records of cash purchases of "negotiable instruments" like cashiers' checks

• Report cash transactions exceeding $10,000 (per day) to the U.S. Department of Treasury

• Develop a suspicious activity monitoring process

• Report suspicious transactions that may be related to criminal activity or appear to be skirting the cash transaction reporting requirement

• Screen for transactions from entities on the Office of Foreign Assets Control Sanctions List

• Adopt a customer identification program to meet the requirements of the USA Patriot Act

The Office of the Comptroller of the Currency conducts regular AML examinations of banking institutions. The Bank Secrecy Act covers banks, credit card companies, insurance companies, and broker-dealers in securities.

The Travel Act

The Travel Act (18 U.S.C. section 1952) made it illegal to travel with the intent of distributing proceeds from a certain list of crimes. It also made it illegal to promote or carry out such crimes. Conviction for such misconduct carries a prison sentence of up to five years.

Anti-Drug Abuse Act

The federal government has also tried to crack down on the involvement of organized crime in drug trafficking and its use of legitimate businesses for money laundering.

The Anti-Drug Abuse Act of 1988 expanded the definition of "financial institution" to include car dealerships and real estate closers. These businesses often handle large amounts of money. So, they were attractive options for laundering significant funds.

Now, these entities must file reports on large currency transactions. They are also required to verify the identity of purchasers in amounts of over $3,000.

Annunzio-Wylie Anti-Money Laundering Act

The Annunzio-Wylie Anti-Money Laundering Act of 1992 strengthened the penalties of the Bank Secrecy Act. It also required verification and recordkeeping for wire transfers and required suspicious activity reports.

Money Laundering Suppression Act

The Money Laundering Suppression Act of 1994 updated financial regulations. It required banking agencies to enhance training and review how they refer cases to law enforcement.

It also folded "money service businesses" into anti-money laundering laws, which include services such as:

• Cashing checks

• Issuing traveler's checks, money orders, or stored value cards

• Exchanging currency

Money Laundering and Financial Crimes Strategy Act

The Money Laundering and Financial Crimes Strategy Act of 1998 required banks to develop training for bank examiners.

This Act also required the Department of the Treasury to develop a national strategy. It had to create task forces to focus law enforcement efforts in areas where money laundering was most common.

Money Laundering and the Patriot Act

Following the terrorist attacks of September 11, 2001, Congress passed the USA Patriot Act. Title II of the Patriot Act — the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 — focuses almost entirely on money laundering. It criminalized the financing of terrorism.

The Patriot Act created potential criminal liability for financial institutions that are "willfully blind" to money laundering. It required all financial institutions to check customer identities against lists of known or suspected terrorists. Banks had to institute an enhanced due diligence procedure for foreign and private banking accounts. They are also prohibited from engaging in business with foreign shell banks.

The Patriot Act improved information-sharing between the government and financial institutions. Banks must now respond to regulatory requests for bank records within 120 hours.

This law can trigger an investigation of a suspect financial institution by the Federal Reserve and the Office of the Comptroller of Currency. If found guilty of illegal activity, a financial institution could face civil fines or criminal prosecution.

Financial Action Task Force

The Financial Action Task Force (FATF) is not a U.S. statute. Rather, it is an intergovernmental organization founded in 1989 to combat money laundering.

In 2000, it turned its sights on the financing of terrorism. "Combating the Financing of Terrorism" (CFT) is a set of laws and regulations that govern funding and financial services.

The FATF maintains a "blacklist" and a "greylist" of nations. They include countries that fail to take proper measures to fight money laundering and terrorist financing. They also include countries that are themselves viewed as terrorist organizations.

Anti-Money Laundering Act of 2020

The Anti-Money Laundering Act of 2020 (AMLA) expanded whistleblower rewards and protections. It established new Bank Secrecy Act violations. AMLA also enhanced penalties for repeat and egregious offenders.

The original Bank Secrecy Act said the Secretary of the Treasury may pay a reward, with a limit of $150,000. The AMLA now says the Secretary must pay, and the payment ceiling is 30% of whatever the government collects.

The AMLA tried to close loopholes by requiring shell companies to register a "beneficial owner," someone who has more than 25% of the ownership interest. This information is only reported to the Financial Crimes Enforcement Network (FinCEN). It can only be shared with law enforcement, regulators, and financial institutions.

Charged With Money Laundering? Contact a Criminal Defense Lawyer

Financial crimes are complicated. Both prosecutors and defense attorneys require a certain level of expertise. These types of criminal cases are hard to navigate on your own.

Whether you were charged with a crime or are involved in a case, it helps to know the law. Get the help you need from an experienced criminal defense attorney near you.